Answer: -17.8%

## Explanation **Step 1: Calculate the initial investment and margin** - Purchase price per share = $30 - Number of shares = 1,000 - Total purchase value = 1,000 × $30 = $30,000 - Margin requirement = 75% (meaning 25% is borrowed) - Equity investment = 25% of $30,000 = $7,500 - Amount borrowed = 75% of $30,000 = $22,500 **Step 2: Calculate the sale proceeds** - Sale price per share = $26 - Total sale value = 1,000 × $26 = $26,000 **Step 3: Calculate the net profit/loss** - Repay the loan = $22,500 - Remaining after loan repayment = $26,000 - $22,500 = $3,500 - Initial equity = $7,500 - Net loss = Ending equity - Initial equity = $3,500 - $7,500 = -$4,000 **Step 4: Calculate return on equity** - Return on equity = (Ending equity - Initial equity) / Initial equity - Return on equity = (-$4,000) / $7,500 = -0.5333 = -53.33% **Wait, this doesn't match any options. Let me recalculate properly.** Actually, I need to reconsider the margin requirement. A 75% margin means the investor puts up 75% of the purchase price, not 25%. **Correct calculation:** - Margin = 75% means investor puts up 75% of purchase price - Equity investment = 75% × $30,000 = $22,500 - Amount borrowed = 25% × $30,000 = $7,500 **Sale proceeds:** - Total sale value = $26,000 - Repay loan = $7,500 - Remaining after loan repayment = $26,000 - $7,500 = $18,500 **Return calculation:** - Initial equity = $22,500 - Ending equity = $18,500 - Loss = $18,500 - $22,500 = -$4,000 - Return on equity = (-$4,000) / $22,500 = -0.1778 = -17.78% **Therefore, the return on equity is approximately -17.8%, which matches option A.** **Key points:** - Margin percentage refers to the investor's contribution (equity) - Return on equity measures the return on the investor's own money - The calculation shows how leverage amplifies both gains and losses

Author: LeetQuiz .